High interest rates hit US banks hard
The four biggest US banks in terms of assets lost $52.4 billion in market value in just one day. Investors started selling shares of JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo on Thursday due to concerns about their bond portfolios.
The sell-off was triggered by the news of struggling small California-based bank Silicon Valley Bank, which works with tech startups. On Wednesday, SVB reported that it had lost around $1.8 billion after selling a $21 billion portfolio of securities, due to a reduction in customer deposits. The loss prompted the bank to announce a $1.75 billion stock offering to bolster its capital.
Investors doubted that the capital raise would be sufficient, given the deteriorating condition of many of the tech startups that the bank had lent to. SVB shares plummeted 60% on Thursday, to their lowest level since 2016. In pre-market trading on Friday, they fell another 34%.
This situation has caused investors to take notice of the risks associated with the bond portfolios of other US banks, many of which have invested in long-term securities, including treasury bonds, with funds from the pandemic deposit inflows.
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